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  1. INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES – GHANA’S EXPERIENCEByE. ASIEDU-MANTE (1ST DEPUTY GOVERNOR, BANK OF GHANA)THE REGIONAL WORKSHOP ON INTEGRATING FINANCIAL SERVICES INTO POVERTY REDUCTION STRATEGIES ABUJA, NIGERIASEPTEMBER 13 – 15, 2005Organised ByAFRICAN RURAL AND AGRICULTURAL CREDIT ASSOCIATION (AFRACA)SEPTEMBER, 2005 Presented by Stephen Ameyaw - Bank of Ghana

  2. TABLE OF CONTENTS • INTRODUCTION • ECONOMIC DEVELOPMENTS IN GHANA • GHANA POVERTY REDUCTION STRATEGY THE FINANCIAL SYSTEM IN GHANA • USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA • CONCLUSIONS Presented by Stephen Ameyaw - Bank of Ghana

  3. 1. INTRODUCTION 1.1 Poverty in Africa • While Africa is a richly endowed continent, with abundant natural resources, it is faced with high levels of poverty, with Sub-Saharan Africa ranking lowest in terms of human development. The pervasiveness and depth of poverty in Africa is characterized by the following indicators: - Life expectancy at birth is the lowest in the world. - Fewer people have access to safe drinking water and health services. - The majority live on less than $1.00 a day. - More people are now on the poverty line than was the case twenty years ago. • Several factors have been identified as the root cause of the problem of poverty in Africa, and the most notable ones include the following: - Low productivity, poor infrastructure, and inappropriate macroeconomic policies; - Inadequate health and social services, and high illiteracy rates, especially in the rural areas;Weak institutions, both private and public; - Poor governance, civil conflicts and political instability; and - Heavy indebtedness and deteriorating terms of trade for Africa’s major exports. - In addition to the above rising income inequality in an era of globalization also undermines the prospects for equitable growth and meaningful poverty reduction. (African Development Bank 2001/2002). • Though there are multiple degrees and kinds of poverty, the two which are commonly referred to are the extremely poor and the economically active poor.The World Bank defines extreme poverty as living on less than 75 cents a day; with about two thirds of people defined as poor by the $1 a day standard are classified as extremely poor (World Bank, World Development Report 1990: Poverty). Presented by Stephen Ameyaw - Bank of Ghana

  4. INTRODUCTION • Provision of financial services has been recognized as one of the major tools for poverty alleviation, and considered as oil for growth and the life-blood of the economic system. The financial is the vessel that carries this life-blood through the economic system and channels the financial resources into productive use (Sowa 2002). Finance can help alleviate poverty by: - Supporting productive activities to engender growth; and - Contribute directly to income generation and thereby improve the welfare of the poor. • Other basic requirements which could be provided as a tool for overcoming poverty are food, shelters, employment, health and family planning services, education, infrastructure, markets and communication. • Regarding the role of financial services in poverty reduction, many writers including Zellar and Sharma (1998), and Rutherford (1999) have argued that the poor households place special services, which are available at reasonable cost and cater for their specific needs. The authors noted that the availability of credit and savings facilities could help poor rural households manage and often augment their meagre resources and acquire adequate food and other basic necessities for their families and also be in the position .to maintain consumption of basic necessities when household incomes decline temporarily. • A survey by Zellar and Sharma (1998) in nine countries, including 5 from Africa, revealed that, among others, a large number of poor households in developing countries experience real constraints in the financial market due to unfavourable prevailing transactions terms and that poor households in Africa and Asia face complex multiple constraints on earning opportunities. • Because of the rejection by the formal sector, the poor receive their financial services from the informal sector, which have mechanisms with the following characteristics and therefore, largely do not cater for their needs. - Time bound Presented by Stephen Ameyaw - Bank of Ghana

  5. INTRODUCTION - Inflexible in terms of savings and withdrawals - Associated with loss of interest. • Zeller et al (1997) have pointed out that many poor households have potential demand for financial services (savings, credit and insurance) which more efficiently can contribute to consumption stabilization through: - Improved income generation - decreasing costs for self – insurance through more cost efficient assets and liabilities of households and; - Consumption credits. • Improvements in advances in banking technology, financial sector reforms and institutional innovations that reduce cost of service delivery and improve its usefulness to the poor are essential for enhancing the efficiency and long-run sustainability of rural financial programmes. • Integration of financial institutions which provide financial services is considered to be necessary in the implementation of poverty reduction strategies It is however note that building financial systems for the poor requires the development of a wider range of institutional models n order to achieve the scale and sustainability that will make a durable impact on poverty. • This paper presents Ghana’s experience on the integration of financial services into the implementation of Ghana Poverty Reduction Strategy (GPRS). The rest of the paper covers the following issues: - Economic Developments in Ghana - Highlights of the Ghana Poverty Reduction Strategy (GPRS) - The Financial System in Ghana - Using Microfinance as a Strategy for Poverty Reduction in Ghana; and - Conclusions Presented by Stephen Ameyaw - Bank of Ghana

  6. 2. ECONOMIC DEVELOPMENTS IN GHANA 2.1 Social, Political And Demographic Environment • Ghana has a population of approximately twenty million and the • The total land size of the country is 234,433 square kilometers • It has a well diversified natural resource base including timber, minerals, arable land, natural deposits etc. To a large extent, these resources have either remained untapped or inadequately tapped. • About 77 per cent of the adult population (15 years+) is economically active, with activity rates higher in the rural areas than in the urban areas. About 55 per cent of the working population is involved in agricultural activities with 18.3 per cent in trading and 11.7 per cent in manufacturing. 2.2 Economic Growth and Production • Since 1983, the Government of Ghana has implemented a gradual but sustained adjustment strategy under the Economic Recovery Programme (ERP). The reforms under the ERP have successfully turned the economy around as illustrated in the following developments Presented by Stephen Ameyaw - Bank of Ghana

  7. ECONOMIC DEVELOPMENTS IN GHANA • Ghana is predominantly an agro-exporting country and imports about 98 per cent of its industrial or value added products. Agriculture constitutes about 46 per cent of Gross Domestic Product (GDP) and this essentially rests in the hands of small scale and peasant farmers. The service sector runs second and constitutes about 41 per cent of GDP, with the industrial sector contributing only about 14 per cent of GDP. 2.3Recent Developments • The government of Ghana embarked on several programs to reverse an ailing economy and improve the system through a series of macro economic and structural adjustment reforms. These programs sought to restructure the economy and accelerate growth. • To augment the gains of the ERP and SAP, and reverse the structural imbalances which almost derailed the gains of ERP and SAP programmes as a result of unforeseen external factors such as sky-rocking fuel prices, the government, in 2001 opted for the HIPC initiative as temporary measure and took steps to correct the structural imbalances. Efforts were directed at establishing, sustaining and deepening macro economic stability so as to create conditions necessary for increased real sector development through increased productivity. • The relatively low inflation environment has spurred growth in real credit to SMEs especially in 2004. The share of SMEs in total exposure of banks has increased from 0.95 per cent of GDP in 2001 to 1.54 per cent of GDP by 2004; whereas total credit to the private sector increased from 11.8 per cent to 13.05 per cent of GDP over the same period, which is an indication that SMEs are sharing in the general growth lending. The savings in favour of SMEs are more pronounced in commerce, less so for agriculture, services and manufacturing, and weakest for the transport and other services. Presented by Stephen Ameyaw - Bank of Ghana

  8. ECONOMIC DEVELOPMENTS IN GHANA 2.4 The Way Forward. • The Government, in its 2005 Budget, identified various key activities as part of its Development Agenda, including the following: - Human resource development through education and improved health Service delivery and other related services. - Private sector development, envisaging agriculture based production. - Good governance • The following medium-term macroeconomic objectives were set out in line with the Ghana Poverty Reduction Strategy (GPRS): - Sustaining the pace of economic growth;         - Reducing inflation; and - Making further inroads against poverty. • These objectives would be achieved by: - Making further refinement of the GPRS based on recommendations contained in the first GPRS Annual Progress Report (APR) that was completed in May 2004 and the feedback recommendations from the 2004 National Economic Dialogue;  - Maintaining the stance of monetary policy to achieve the targeted reduction of inflation and build on the improved external reserves position; Presented by Stephen Ameyaw - Bank of Ghana

  9. ECONOMIC DEVELOPMENTS IN GHANA -Deregulating the petroleum sector to open up to private sector investment;  - Furthering efforts to consolidate public expenditures, strengthening revenue collection machinery and reduce domestic debt stock with the goal of “crowding-in” private investment while accelerating public sector reforms. - Strengthening resource mobilization to create greater scope for improving the levels and quality of public spending to promote growth and poverty reduction. Presented by Stephen Ameyaw - Bank of Ghana

  10. 3.0 GHANA POVERTY REDUCTION STRATEGY (GPRS) 3.1 Poverty Profile of Ghana • Poverty in Ghana is the subject of several recent studies, including a profile of the poor that is based on the first year (1987/88) of Ghana Living Standards Survey (GLSS) household survey data. • The poverty profile uses a poverty line of ¢32,981 per capita per annum in 1987/88 Accra prices, which is two thirds of mean consumption per capita per annum for the country as a whole. • Using the first poverty line, 36 per cent of non-Accra residents were in poverty and their mean consumption was ¢22,296 per capita per annum and only 4 per cent of Accra residents fell below the threshold. Thus poverty in Ghana is predominantly a rural phenomenon. • Over 43 per cent of rural inhabitants are below the poverty line. The incidence of poverty in rural areas is more than 13 times the incidence in Accra. (The World Bank 1993) • Ghana reduced the level of poverty from 36 per cent in 1987/88 to 32 per cent in 1991/92. 3.2 Background of the GPRS 3.2.1 Introduction • Ghana adopted a policy framework since the mid 1990s aimed at achieving a balanced economy and a middle income country status by a set target period. This was to be realized through : - Creation of an open and liberal economy, founded on competition, initiative and creativity that employs science and technology in delivering maximum productivity from the use of all human and natural resources; and Presented by Stephen Ameyaw - Bank of Ghana

  11. GHANA POVERTY REDUCTION STRATEGY (GPRS) • Optimization of the rate of economic and social development, with due regard to the protection of the environment and to equity in the distribution of benefits of development. 3.2.2Ghana Vision 2020 • Ghana Vision 2020, originally called National Development Policy Framework was a twenty-five year program dedicated to the improvement of individual and social well being in Ghana. This started with the National Development Goal Setting Exercise in all Districts and Regions on the basis of which a national goal was achieved. • The underlying national goal was to improve the quality of life of all Ghanaians by reducing poverty, raising living standards through sustained increase in national wealth and more equitable distribution of the benefits therefrom. • The thematic areas covered included the role of the public and private sector, poverty, gender equity, employment generation and rural development. 3.2.3The First Medium Term Development Plan (1996 – 2000) • A Medium-Term Development Plan (MTDP) which represents the FIRST STEP towards vision 2020 was drawn for the first five-year period 1996 – 2000 on the basis of the following thematic areas: - Human Resource Development - Economic Growth - Rural Development - Urban Development - An enabling environment Presented by Stephen Ameyaw - Bank of Ghana

  12. GHANA POVERTY REDUCTION STRATEGY (GPRS) • The aim of the plan was to create an enabling environment which will facilitate substantial improvements in the economic and social conditions of all Ghanaians. • It was intended to ensure a significant shift in attitudes and institutional arrangements in favour of private initiative and enterprise, including micro and small enterprise development. • It was expected that by 2000 substantial progress would have been made in the following areas: human resource and productivity management, especially with respect to the education, and • employment of female and the disabled; • reduction of poverty and malnutrition through improved scientific methods of food production, marketing and processing by micro and small enterprises, especially in rural areas; • attainment of a sound financial base for accelerated development; • general awareness of the importance of population control and science-based behaviour in sustainable development. • increased real incomes per head, especially among the rural population; • enhanced community participation in the formulation and implementation of development programmes, with increased planning initiatives and capabilities at district and regional levels. Presented by Stephen Ameyaw - Bank of Ghana

  13. GHANA POVERTY REDUCTION STRATEGY (GPRS) • This 5-year national development plan became the reference document that informed the entire country as well as the international community of the enabling environment to be provided by the Ghana Government in support of private investment initiative and innovation, and also informs non-governmental organizations (NGOs) about the priority social and economic activities in the various districts of the country. • Analysis of progress made in the thematic areas indicate that the plan had limited success. This was largely due to limited coordination between the National Development Planning Commission (NDPC) responsible for plan formulation and Ministry of Finance and Economic Planning (MOFEP) for economic and fiscal management. 3.3 Highlights of the Ghana Poverty Reduction Strategy (GPRS) (i) Goal • The main goal of the Ghana Poverty Reduction Strategy is to create wealth by transforming the nature of the economy to achieve sustainable growth, accelerated poverty reduction and the protection of the vulnerable and excluded within a decentralized, democratic environment. (ii) The Objectives and Strategies Presented by Stephen Ameyaw - Bank of Ghana

  14. GHANA POVERTY REDUCTION STRATEGY (GPRS) • Strategies have been identified for the achievement of the following broad objectives under the GPRS: • Ensure macroeconomic stability – adoption of prudent fiscal, monetary and international trade policies • Increase production and gainful employment – creation of enabling environment for improved private sector-led agrobased industrial production • Facilitate direct support for human resource development and basic services – increasing access to education and training, health services, potable water, sanitation etc. • Expand Special programmes to support vulnerable groups, basically women • Enhance good governance • Deepening political involvement in support of growth and poverty reduction • Increasing captacity for public service and strengthening, • leadership capacity of District Assemblies. Presented by Stephen Ameyaw - Bank of Ghana

  15. GHANA POVERTY REDUCTION STRATEGY (GPRS) 3.4. Government’s Medium Term Priorities (2003 – 2005) Given the magnitude of funding required for the implementation of the entire programmes and projects of the GPRS, the following thematic areas have been prioritized for implementation within the period: (i)Infrastructure development; (ii) Modernised agriculture, based on rural development; (iii) Investments in education, health and sanitation to enhance delivery of basic social services, (iv) Upholding the Rule of Law, respect of rights and attainment of special justice and equity to enhance good governance. (v) Private sector development through macroeconomic stability and streamlining of public bureaucracy. Presented by Stephen Ameyaw - Bank of Ghana

  16. GHANA POVERTY REDUCTION STRATEGY (GPRS) 3.5 Monitoring And Evaluation of Poverty Reduction Programmes • A GPRS monitoring and evaluation system has been put in place to track expenditure disbursement and the actual implementation of poverty reduction programmes and projects through: • household surveys and participatory poverty analysis • monitoring of poverty indicators using the GSS Welfare Monitoring System • specific community surveys Presented by Stephen Ameyaw - Bank of Ghana

  17. 4.0 THE FINANCIAL SYSTEM IN GHANA 4.1 Overview Of The Financial System • Like most African countries, the financial system in Ghana was virtually underdeveloped before independence. There were only two expatriate banks, which catered for the needs of expatriate merchants, and therefore failed to advance loans to local peasants and entrepreneurs, because they lacked collateral securities. • The inadequate lending policies of the two existing expatriate banks favoured well-established foreign firms while they ignored indigenous farmers and small entrepreneurs. It was therefore deemed politically and economically desirable to set up national banks. • Ghana Commercial Bank was established in 1953 and throughout the 1960s and 1970s, various development banks, namely, National Investment Bank, Agricultural Development Bank and the Bank for Housing and Construction were set up to meet the financing needs of specific sectors of the economy. Furthermore, banks such as Cooperative Bank, National Savings and Credit Bank, Social Security Bank and later, unit rural banks were set up. • The banks were encouraged to expand their branch network, and in addition, the Government, in 1970, put in place credit allocation policies to direct credit to selected priority economic sectors. Presented by Stephen Ameyaw - Bank of Ghana

  18. THE FINANCIAL SYSTEM IN GHANA 4.2 Structure of the Financial Sector The financial sector in Ghana currently consists of the following formal, semiformal and informal institutions: - The Bank of Ghana which regulates and supervises banks and non-bank financial institutions. - 19 commercial/investment/merchant banks - 120 Rural and Community Banks -  ARB Apex Bank - 38 Non-Bank financial institutions comprising discount houses, savings and loans companies, finance houses, leasing companies, venture capital companies, building societies, and credit unions. -  Insurance and Re-Insurance Companies (20) - Brokerage Firms (9) - NGOs and MFIs which are mainly credit-granting NGOs that are not liable to central bank or other prudential supervision, together with informal operators such as susu collectors and susu groups engaged in small and medium enterprise finance rotating Savings and Credit Associations (ROSCAS) - and Self Help Groups (SHDs). - 261 Credit Unions registered with the Credit Unions Association (CUA). - One Stock Exchange Presented by Stephen Ameyaw - Bank of Ghana

  19. THE FINANCIAL SYSTEM IN GHANA 4.3 Financial Sector Reforms In the late 1970s and early 1980s, the economy of Ghana was in a state of collapse. In April 1983 the Government, in collaboration with the World Bank and the International Monetary Fund (IMF), embarked on a comprehensive Economic Recovery Program (ERP) to reverse Ghana’s poor economic performance. • The various policy initiatives adopted include: - Massive devaluation of the Ghanaian currency, removal of controls on foreign exchange transactions; - Decontrol of domestic prices; - Tighter fiscal management; and - Other measures to increase the free market system. The impact of the macroeconomic, policy change include reduction on inflation and improved growth in GDP. • Despite the improvement made in the Ghanaian Economy as a result of the ERP the financial sector remained weak and could not mobilize significant resources to sustain the reform program. • By 1987, the cumulative effect of the devaluation, excessive regulation of the banks and high default rates in the banks rendered most of their assets non performing with the consequent heavy losses resulting in financial crisis. High inflation rates wiped out the capital base of most of the banks and further pushed them into the state of bankruptcy or technical insolvency. Presented by Stephen Ameyaw - Bank of Ghana

  20. THE FINANCIAL SYSTEM IN GHANA • In 1988, the government embarked on a comprehensive Financial Sector Adjustment Program (FINSAP) with Financial support from the World Bank to address the endemic problems of Ghana’s financial sector. The program was implemented in three phases during specified period as follows: - FINSAP I (1988 – 1991) - FINSAP II (1992 – 1995) - FINSAP III (From 1995) • The specific focus on the financial sector was aimed at: - Creating a sound prudential and regulatory framework for banking; - Strengthening bank supervision; - Restructuring distressed banks; - Development of Human resources in the banks; and - Development of fully liberalized money and capital markets. • Highlights of activities undertaken under the reform include the following; (i) Regulatory and Legal Reforms The Banking Law (PNDCL225) was revised in 1989, which introduced innovations, including: (a) the tightening of risk exposure limits; (b) establishment of tighter capital adequacy ratios; (c) strengthening of accounting standards making them uniform for all banks; Presented by Stephen Ameyaw - Bank of Ghana

  21. THE FINANCIAL SYSTEM IN GHANA (d)broadening the scope for audits of banks; (e) imposition of stringent reporting requirements; (f) improvement of on-site and off-site supervision of bank by Bank of Ghana. • A revised Bank of Ghana Law (PNDCL.291) was enacted in 1992 to give supervisory powers to the Central Bank. • These laws have been replaced by Bank of Ghana Act, 2002 (Act 612) and Banking Act, 2004 (Act 673) respectively. • In order to bring more financial institutions under the supervision and regulation of the Bank of Ghana, a Financial Institutions (Non-Banking) Law (PNDCL 328) was also enacted in 1993. This law covered activities of discount houses, finance houses, acceptance houses, building societies, leasing and hire-purchase companies, venture capital funding companies, savings and loans companies and credit unions. (ii) Financial Restructuring • The reforms also involved management and financial restructuring of the banks which involved: - Establishment of new boards; - Change in the top management position; - Recapitalisation; and - Cleaning up of the balance sheet of non-performing assets. Presented by Stephen Ameyaw - Bank of Ghana

  22. THE FINANCIAL SYSTEM IN GHANA • Institutional Restructuring • This aspect of the reform aimed at encouraging competition in the financial sector and involved: - Establishment of new institutions; - Mergers and liquidation of banks and divestiture of public sector shareholding in some of the banks. • The Capital Market • Ghana’s capital market was established under the FINSAP in 989. The Ghana Stock Exchange (GSE) began full operations in November 1990 with 12 listed companies and one Government bond. Market capitalization within the first two years of operation increased from ¢30.0 billion in 1993 to ¢43.0 billion 1992, while listed companies increased to 15. In 1993, the total market capitalization went up by about 120 per cent to ¢95.0 billion. The number of listed companies as well as total market capitalization continued to increase and as at the end of 2004, they stood at 30 and ¢97,614.8 billion (US$10.5 million) respectively. • Interest Rate Liberalization • As part of the move to encourage competition among the banks, interest rates were deregulated in a step-wise manner under the FINSAP, which was also in conformity to the new form of financial programming under the Structural Adjustment Programme (SAP). Presented by Stephen Ameyaw - Bank of Ghana

  23. THE FINANCIAL SYSTEM IN GHANA 4.4. Impact of the Financial Sector Reforms • The efficiency of financial markets in promoting financial deepening and savings mobilization of financial resources has been recognized by policy makers and economists such as Ronald McKinnon (1973) and Edward Shaw (1973). McKinnon postulates that an increase in holding financial assets (financial deepening) by the public promotes savings, investment production, growth and poverty alleviation. However, financial market intervention by government in developing countries constrains the potential of financial markets in mobilizing savings for growth and development. 4.4.1 Impact on the Banking Sector There have been various studies in attempts to evaluate the extent to which the financial reform program has fostered increased and sustainable competition in the financial market as well as the impact on the Ghanaian economy. • Highlights of the results of a study by Aryeetey and Seini, 1992 are as follows: (i) The nominal deposit and lending rates increased gradually from 1984 in consonance with the scope of liberalization; and averaged 3.7 percent per annum during the first five years. (ii) Improvement in the real deposit rate has been very significant. In the first year of the reforms (stabilization cum interest rate liberalization, real deposit rate increased by 86.7 per cent points (from 24.8 per cent to 111.5 per cent). Between the pre-reform and the reform periods real deposit rate increased by 52.2 per cent although it remained negative. Presented by Stephen Ameyaw - Bank of Ghana

  24. THE FINANCIAL SYSTEM IN GHANA (iii) The rise in real deposit rates did not however lead to higher rate of savings. The ratio of savings to GDP decreased slightly by 0.6 per cent over the reform period. This poor performance of savings is believed to have resulted from the public loss of confidence in the banking system as a result of government intervention in 1982.  (iv) The effect of the tight fiscal operations that accompanied the financial sector reform showed up in larger flow of domestic credit to the private sector, resulting in increase in the private sector share of credits from 9.2 per cent to 20.3 per cent. Real private sector credit also increased by 2.2 per cent. (v) The period of adjustment witnessed increased macroeconomic stability. Deficit/GDP ratio dropped drastically from 5.1 per cent average to 0.1 per cent. The rate of inflation declined by 47.0 per cent points, from 73.3 per cent to 26.3 per cent on the average. 4.4.2 Poverty Reduction • Even though Ghana had a turn around in its growth which was negative before the adjustment to positive and averaged 5 per cent between 1984 and 1993, the growth was not enough to lead to significant poverty reduction. During the same period, population grew by 3.2 per cent which implied that per capita output registered a growth of 1.8 per cent at the most. Given the extent of the poverty in the country before the reform, such a growth rate is not likely to take a lot of people out of poverty. (Sowa, 2000). Presented by Stephen Ameyaw - Bank of Ghana

  25. 5. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA 5.1 Introduction • It has become increasingly acceptable that in order to reduce the incidence of poverty, disposable income levels need to be increased on continuous basis through productive and profitable investments by the poor themselves. These investments would have to be financed either through own savings, equity or credit. • In recent years, microfinance has gained more recognition among governments, policymakers, donors, target clientele, among others as a tool for promoting economic development and reducing poverty, through the provision of access to appropriate financial services in poorer countries. • Microfinance can enrich the lives of the poor by creating greater choice and ability to access small amounts of credit, build small cushions of savings and invest in forms of insurance. • The new challenges in microfinance are: - how to ensure the development of institutions that would help in outreaching the poor who have not fully benefited from their services - how to evolve innovative products, processes and strategies that would strengthen traditional approaches, and - how to mainstream informal microfinance institutions into the formal sector. • Addressing these issues would enable microfinance institutions provide suitably packaged financial services geared at raising the level of economic activities for greater profit and/or create opportunity for engaging in other economic activities and thereby create wealth for the household. Presented by Stephen Ameyaw - Bank of Ghana

  26. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA • Under the Ghana Poverty Reduction Strategy (GPRS), the use of microfinance and other tools to enhance capacity of the poor to engage in sustainable productive activities has been recognized as a poverty reduction strategy (Social Investment Fund, Operations Manual and Procedures, January 1999). 5.2 Role Of Government And Its Agencies In Microfinance Development • The Government of Ghana recognizes the fact that limited availability of credit and small savings opportunities, among other factors account for the low productivity of the small holder in agriculture. The low productivity in turn has contributed to poverty conditions in rural areas, particularly among cocoa farmers and kept food prices high, and made products uncompetitive in international markets. • With the view to addressing the perennial problem of inadequate credit to micro, small and medium entrepreneurs engaged in agriculture and other enterprises, the Government of Ghana has embarked on a sustainable development of the microfinance sub-sector with the help of its development partners, as a strategy among others, for reducing poverty. • In this regard, a National Strategic Framework has been drawn in consultation with the major stakeholders, with the view to providing an enabling environment for the sustainable development of the microfinance industry. • The prominent partners in the formulation of the framework are: The target clientele, Bank of Ghana; Various microfinance institutions; Researchers and Practitioners; The Ghana Microfinance Institutions. Network (GHAMFIN); and Various donors including the World Bank. Presented by Stephen Ameyaw - Bank of Ghana

  27. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA • The Framework is pivoted around the following key issues among others: - Creation of an enabling macroeconomic environment; - Establishing of a sustainable regulatory environment; - Institutional Development (capacity building of MFIs); - Identification and definition of the target clientele; - Development of innovative financial products; - Access to on-lending funds; - Development of on-lending linkage among MFIs; - Inclusion of informal financial suppliers; - Development of effective training for MFIs; - Establishment of National Microfinance Network; - Appropriate GOG poverty reduction initiatives and; - Research and information dissemination Presented by Stephen Ameyaw - Bank of Ghana

  28. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA 5.2.1 The Government • The Government is playing its developmental role through the following activities: - Policy, design and initiatives; (Policies for the development of MFI sector toward financial self sufficiency) - Institution of Laws and Legal framework for the Sector; - Mobilization of financial resources and technical assistance from the donor community such as (i) The World Bank/ IDA NBFI Project (ii) Social Investment Fund from ADF/AfDB (iii) IFAD Facilities (LACOSREP, UWADEP) (iv) Coordination of donor support (Microfinance Coordinator appointed in MFEP) • As part of accelerated and targeted measures to reduce poverty through direct financial support to enable the poor, to invest in productive and profitable activities, the Government has since 1997 directed all District Assemblies (DAs) to provide 20% of their Common Funds as loans through banks to the productive poor in their catchment areas. • The main policies being promoted by Government and its development partners deal with the constraints in the development process of the microfinance sub-sector include: Presented by Stephen Ameyaw - Bank of Ghana

  29. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA - Reforms of institutional development and capacity building, including training of MFIs and clientele - Financial system integration, and - Pursuing pragmatic, cost effective Regulatory and Supervisory Framework. • The policies are being implemented through the following strategies: - Establishment of a performance-based Capacity Building Fund; - Linkage banking between viable MFIs and mainstream banks; and - Differentiated Regulation of MFIs, i.e. creating Tiers of Regulation through cost effective Apexes; 5.2.1. Bank of Ghana • Having been institutionally mandated to see to the efficient operation of banking and credit system, the Bank of Ghana’s responsibility covers, regulation and supervision of banks and non-bank financial institutions including MFIs such as NGOs, Credit Unions and Susu Collectors. However, resource constraint and the need to be cost effective has affected the total regulation of the financial system. • The Bank is currently regulating the formal system, including banks, and non-bank financial institutions such as savings and loans companies, discount houses, finance houses, leasing companies, venture capital companies and building societies. Presented by Stephen Ameyaw - Bank of Ghana

  30. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA • However, while it is concentrating on the formal system, the Bank is encouraging self regulation by apex bodies. In this regard, the appropriate legislature which will give legal backing to the apex bodies would be promulgated. Currently, a Credit Union Association (CUA) law has been finalized for submission to Parliament. 5.2.2 Donor Support and Intervention • Donor support has been provided in a number of areas which has benefited various microfinance institutions as follows Presented by Stephen Ameyaw - Bank of Ghana

  31. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA 5.3 Mainstreaming Informal Financial Institutions 5.3.1Networking • Given the prevalence of informal financial sector in Ghana and its capacity for adaptation and innovation, special support would be required for informal financial institutions (IFIs) particularly self-help groups for the purpose of mainstreaming into the formal sector: These include: - Enhancing management skills and operational practices; - Transforming rotating and non rotating savings and credit associates, susu collectors, self-help groups other associations money lenders and similar informal institutions many of which are of indigenous or traditional origin into formal financial intermediaries; - Availing of opportunities for upgrading to regulated financial institutions, and mainstreaming them into the Formal Financial Sector, and  - Entering into linkages with banks • In Ghana susu collectors have networked and formed an association – Ghana Co-operative Susu Collectors Association (GCSCA) for the purpose of self-regulation of the collectors, with a current membership of 1,000 individuals Presented by Stephen Ameyaw - Bank of Ghana

  32. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA • GCSCA was established in 1994 as an umbrella organization for all Regional Susu Collectors Societies in Ghana. The Association has its headquarters in Accra with regional branches or societies in eight out of the ten regions of Ghana namely, Greater Accra, Volta, Central, western, Easter, Ashanti, Brong Ahafo and Northern Regions. • The Mission of the Association is to continuously protect the interest of susu collectors by promoting the cooperative concept of the association, standardizing their operations maintaining and improving the business of the members and by becoming professional financial service providers particularly the informal sector of Ghana. 5.3.2 Linkage Banking • On their own initiative, and sometimes aided by consultancy proposals, some informal financial institution’s have entered into numerous linkages, mostly depositing savings in cooperatives and banks. However, being informal, these institutions face great difficulty in accessing credit from those banks and cooperatives.  • This is where there is the need to promote linkages between informal and formal financial institutions. Currently some rural/community banks in Ghana are encouraging linkages with identified informal organisation’s and self-help groups in their catchment areas. Presented by Stephen Ameyaw - Bank of Ghana

  33. USING MICROFINANCE AS A STRATEGY FOR POVERTY REDUCTION IN GHANA • The Ghana Microfinance Institutions Network (GHANFIN) instituted a pilot project in 1991 with support from DANIDA and the World Bank. Within the pilot project, members of the Ghana Cooperative Susu Collectors Association (GCSCA) were linked in selected regions with selected financial institutions and obtained access to credit for on-lending to selected clients while the NBFI benefited from savings from clients: • The NBFIs involved in the scheme are: - Sinapi Aba Trust (Ashanti Region) - Nsuatreman Rural Bank (Brong Ahafo Region) - Citi Savings and Loans Company (Greater Accra Region) - Lower Pra Rural Bank (Western Region) 5.3.3 Towards Delegated Regulation and Supervision • Upgrading large numbers of IFIs into formal microfinance institutions poses new supervision problems including lack of adequate capacity by the supervisory authority. This calls for delegation of a second tier regulatory authority. Presented by Stephen Ameyaw - Bank of Ghana

  34. 6.CONCLUSIONS 6.1CONCLUSIONS In the light of the foregoing, the following conclusions have been drawn: 1.Policy improvements in Ghana in the 1980s have helped to generate substantial growth. 2. Poor people constitute the vast majority of people in most developing countries. 3. Access to sustainable financial services enables the poor to increase incomes, build assets, and reduce vulnerability to external shocks. 4. The poor need a variety of financial services, not just loans. However most of the poor usually lack access to the formal financial system, and therefore have developed a variety of financial relationships with the informal financial system which are faced with limitations. 5. Existing financial institutions may not offer financial products that are appropriate to the needs of the poor. In order to achieve the full potential of reaching a large number of the poor, financial services, particularly microfinance should constitute an integral part of Poverty Reduction Strategies. Presented by Stephen Ameyaw - Bank of Ghana

  35. CONCLUSIONS 6.The Ghana Poverty Reduction Strategy (GPRS) has a focus on providing the enabling environment that will empower all Ghanaians to participate in wealth creation and partake in the wealth created. • The use of microfinance and other tools to enhance capacity of the poor to engage in sustainable productive activities has been recognized as a poverty reduction strategy under the GPRS. • Given the numerous informal financial institutions in Ghana, efforts are being made to mainstream such institutions into the formal financial system. The incentive approach for the realization of this objective is being encouraged. Presented by Stephen Ameyaw - Bank of Ghana

  36. REFERENCES 1. Manfred Zeller and Manohar Sharma (1998) “Rural Finance and Poverty Alleviation”. International Food Policy Research Institution (IFPRI) Food Policy Report. 2. Nii K. Sowa (2002) “Financial Sector Reform Policies and Poverty Reduction”. A Paper Presented at the Fifth ADRC Senior Policy Seminar on Poverty Reduction and Macroeconomic Management in Africa, Dar es Salaam, Tanzania. 3. World Bank (1993), “Ghana 2000 and Beyond: Setting the Stage for Accelerated Growth and Poverty Reduction”. 4. African Development Bank, (2002), “Gender, Poverty and Environment Indicator of African Countries”. 5. World Bank, Development Outreach Vol. III, No. 1, Winter 2001. 6. CTA, GTZ, DSE. Agriculture Rural Development, Vol. 6 No. 2. 7. Ernest Aryeetey, (1996), “The Formal Financial Sector in Ghana After the Reforms”. 8. Ghana Poverty Reduction Strategy, Final Draft Version, February, 2002. 9. Sylvain Lariviere and Frederic Martin (1998), “Innovations in Rural Microfinance: The Challenge of Sustainability and Outreach”. Presented by Stephen Ameyaw - Bank of Ghana

  37. REFERENCES 10. Manfred Zeller and Manohar Sharma (1998) “Demand for and Access to Financial Services by the Rural Poor”. 11. Sylvia Wisniwski (1998), Savings in the Context of Microfinance: Lessons Learned from Six Deposit Taking Institutions. 12. Hans Dieter Seibel (2002), “Informal Finance: Origins, Evolutionary Trends and Donor Options”. 13. William F. Steel, Ernest Aryeetey, Hemamala Hettige and Machiko Nissemke. “Informal Markets Under Liberalization in African Countries”. Presented by Stephen Ameyaw - Bank of Ghana

  38. REFERENCES 14. John F. Gadway (2000), “ Supply of Microfinance Service: A Perspective on International Best Practices”. 15. Eschbord (2000), “Microfinance Associations: The Case of the Ghana Microfinance Institutions Network (GHAMFIN)”. 16. David S. Sahn, Paul A. Dorosh and Stephen D. Younger, Structural Adjustment Reconsidered: Economic Policy and Poverty in Africa. 17. Ghana Vision 2020, (The First Step: 1996 – 2000) (January 1995). 18. J. Clark Leith, Ghana Structural Adjustment Experience, Country Studies No. 13. 19. Sam Q. Ziorklui et al (2001), “The Impact of Financial Sector Reform on Bank Efficiency and Financial Deepening For Savings Mobilization inn Ghana”. Presented by Stephen Ameyaw - Bank of Ghana

  39. REFERENCES 20. World Bank (1995), Ghana, Growth, Private Sector, and Poverty Reduction. 21. Gyan-Baffour G. (2000), “The Ghana Poverty Reduction Strategy: Poverty Dianostic and Components of the Strategy. 22. Bank of Ghana Annual Reports. 23. Marguerite S. Robinson, The Microfinance Revolution: Sustainable Finance for the Poor Presented by Stephen Ameyaw - Bank of Ghana

  40. THANK YOU! Comments/Questions? Presented by Stephen Ameyaw - Bank of Ghana

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